JPMorgan Cleared of Charges for Lehman Investments

In dismissing the charges against JPMorgan
Chase (JPMC), U.S. District Judge Barbara S. Jones of the U.S. District Court
for the Southern District of New York pointed out that the fiduciary duty to
act prudently under the circumstances at the time of the decision precludes any
judgment of a fiduciary’s actions “from the vantage point of hindsight.” Even
if references to news articles and basic financial modeling were sufficient to
make it “theoretically conceivable” that JPMC should have known about Lehman’s
weakening financial condition, such speculation is not enough to defeat a
motion to dismiss, Jones said.

Jones did agree that JPMC’s actions
in 2008—demanding additional collateral and taking advantage of Lehman’s weak
negotiating position—suggest that JPMC harbored some concerns about Lehman’s
creditworthiness, but she found that does not indicate JPMC knew that
maintaining the plan’s investments in Lehman was unduly risky.

The court also found the board of
trustees of the Operating Engineers Pension Trust failed to provide facts to
support its assertion that JPMC violated its duty to monitor the investments.
“Plaintiff alleges only in the vaguest terms that JPMC failed to conduct a
proper investigation into the Lehman investments and that JPMC did not exercise
independent judgment in deciding to keep the plan invested in the Lehman
notes,” Jones wrote in her opinion.

Finally, the court rejected the
pension plan’s assertion that a conflict of interest arising out of the fee
arrangement between the plan and JPMC motivated JPMC’s breach of fiduciary
duty. Jones concluded the plan entered into the securities lending arrangement
freely and after arms-length negotiations; it cannot now claim the fee
arrangement to which it agreed creates a conflict of interest to JPMC’s unfair
advantage.